All this is fine, again, this looks more like the story tellers sales model than modern asset management. Do tell about your losers. Not.

I'm ready for this industry require a minimum professional license, like CFP or CFA, and lose the whole sales shtick.

http://www.thefreedictionary.com/shtick

Modern asset management? LOL !!!!!!!!!!!!!!!!!!!!!

Actually, in a way, we agree. That is: a generation ago Wall Street was turning out fully independant advisors. Members of this group were investment specialist as well as master sales people. Buttt, about 15 years ago the industry embraced the scalable fee platform. Going this direction required a new type of advisor. The new advisor's job was simply that of asset gatherer. The firms could lose the investment expertise part of the program and replace it with a course in statistical market history. Which of course is what they did. Because the new advisor is positioned between the investment experts and the client, their task has been reduced to a pure sales task. All they do is bring in the money and hand it over to someone else to manage.

Wall street also changed the pitch. But a pitch it is none the less. Instead of selling a product they now perform a service. Of course the service is the product. The wires, and now everyone else who trains advisors, arms its sales force with pie charts and questionaires. Questionaires to gain the trust and pie charts to pitch the product.

To get around the abysmal track record of this program Wall Street has trained its salesforce in the fine art of misdirection. "For example, in the face of steep loses, telling a client " it's not about performance, it's about attaining your goals." or "My job isn't to outperform the market, it's to help you retire."  And on and on it goes. This kind of thinking is akin to a head coach of an NFL team saying "My job isn't to win games it's to get to the Superbowl." It just doesn't make sense. Yet, the new advisor has to be a master salesperson to deliver this skewed logic and make it believable.

So, in that sense we agree. i think the deception is beyond unethical.

Regardless, you're not going to get your wish. The future is more sales not less.

Wow, you are really cynical.

Clients hire me to be here for them. Period. They're getting a good deal, a bargain.

I have a great career that allows me to study, think and act in a proactive manner on their behalf, in a consultative manner.

It's still tough to make a career in this industry, but I believe it is due to special interests allowing this to business to be more about selling products, like cars, instead of the professionals getting the upper hand in regulation.

It's not at all about products, or sales. I respect you and your right to make a living, though.

Just so we're clear.

Looking at the current regulatory environment, I think you're the one that is dreaming. Ironically, regulation will be wrought by your nanny state. Perhaps a silver lining, we'll see. I'm not at all afraid.

Look what the FPA is doing. It is time to stop chasing the general public, and settle down and serve in a professional manner, like dentists, doctors and other licensed professionals.

The discussion between Bg and mily is interesting, politics aside. The IRA and 401k have put middle America into the investor marketplace. There's so much money there that naturally the marketplace is trying to find ways to get paid to "manage" it. Yet, as the discussion on this thread shows, there is no clearcut optimal way to do so. The problem is that the marketplace doesn't reward the person best capable of guiding the investor . The market rewards the person who brings in the most money. And it is(in my opinion) an unwarranted assumption to say that the best investment guide brings in the most money, therefore the system is self regulating. The question I am asking myself right now is: Is this an ethical business, or is it a money chasing business that gives attention to ethics just enough to stay out of trouble, while maximizing AUM?

Think I'm wrong on my take of the current state of the biz? Fair enough, show me the numbers? Your numbers?

But of course you won't do that becaue your numbers indict your process, expose it as the scam it really is.

You're not doing anyone any favors with your pie chart. Gaining a CFP  isn't going to change that.

The world is not a fair place. if it was we'd live in the same town and i'd have your client list. Of course, after calling everyone on the list i'd have to find something to do for the next 364 days of the year. Still, i'd be doing everyone on that list the biggest favor of their financial lives.

Milly, i'm not going to follow your lead with the disingenuous comments about respect. I don't respect your right to make a living in this profession because you are what's wrong with this profession right now. You show up with a hand shake and a pie chart and then proceed to destroy those who trust you. I see this with every prospect appointment. People destroyed by the wires, regionals, independants, and RIAs. And always the same story, Managed money, modern portfolio management, put whatever name you'd like on it, same result. You don't have clients, you have victims.

Prove me wrong, show me the numbers.

[quote=BondGuy]

Think I'm wrong on my take of the current state of the biz? Fair enough, show me the numbers? Your numbers?

But of course you won't do that becaue your numbers indict your process, expose it as the scam it really is.

First of all, I don't have anything to prove to anyone. You won't be sharing your numbers, and I won't be sharing mine, for confidentiality reasons. No one is going to be sharing any real information on the internet.

You're not doing anyone any favors with your pie chart. Gaining a CFP  isn't going to change that.

Second, I've made money over the past decade, and so has anyone running "moderate" porfolios. The market has been relatively flat, but stocks and bonds have yielded dividends, and bonds have done well. That money has compounded nicely.  Don't try to BS me, or build a straw man that you can attack.

The world is not a fair place. if it was we'd live in the same town and i'd have your client list. Of course, after calling everyone on the list i'd have to find something to do for the next 364 days of the year. Still, i'd be doing everyone on that list the biggest favor of their financial lives.

Huh? A lot of folks don't like to be cold called about their money. What's your problem? Do you get cold calls from any professional, ever?

Milly, i'm not going to follow your lead with the disingenuous comments about respect. I don't respect your right to make a living in this profession because you are what's wrong with this profession right now. You show up with a hand shake and a pie chart and then proceed to destroy those who trust you. I see this with every prospect appointment. People destroyed by the wires, regionals, independants, and RIAs. And always the same story, Managed money, modern portfolio management, put whatever name you'd like on it, same result. You don't have clients, you have victims.

I retract the olive branch. You don't know Jack about me or my clients. If all the people I have helped are victims, I guess they are victims of goodness.

Prove me wrong, show me the numbers.

Stop. That won't help you save face. Don't attack things like education and the CFP. Stop being reactionary, change is here, look what the CFP board is doing in Congress. Trying to stop aggressive BS'ers like you. I hope your progressive friends are successful, like I say, it seems like they have found some friends in your Congress. Maybe my dues will finally amount to something.

The American public deserves better.

[/quote]

Milly, you've got nothing!

I'm not asking for your personal numbers, though that would be entertaining to see. Here's what i'm saying: Get your pie chart out, the same one you use when trying to convince new prospects the markets are a better place for their money than their mattress. Point out on that chart or charts, if you need more than one, how your system has benefitted clients. And i really want to see how those compound dividends have outweighted getting run down by not one, but two trains in less than a decade. pretend i'm a client, show me?

Milly, this isn't academic. This is real life. I'm out there everyday. I've seen what you pie chart guys have done to people. You've ruined them. Not in every case, but in most. And then you fail to take responsibility for what you've done. And, here's the wosrt part, "It won't happen again!" That's your answer to how do we protect client's assets from another meltdown. On this very thread there are posters saying exactly that. I'm not here to have a debate with you and take cheap shots. I'm honestly disgusted with people like you.

I don't care what designations you have behind your name, if you are doing this clients you need to thrown out of the business.

And a word about education. Education is a wonderful thing, but don't get too far ahead of yourself on that front. If you think the saying "People don't care how much you know until they know how much you care" is a catchy sales slogan you are living in a world of dilusional thinking. Success in this business is more closely tied to the meaning behind that phrase than it is to any designation. I take accounts from CFPs who don't know their ass from their elbow on a regular basis. Why is that?

The biggest probelm here is that guys like you are so brainwashed you don't realize it. You've bought into Tully's marketing plan hook line and sinker. I mean, your drinking the Kool Aide and not only do you not realize it's Kool Aide, you are so unaware you don't realize you are drinking anything. And, i know what you're thinking right now, who's Tully and what's he got to do with this?

Do you think the fee platform, what you call MPM, was rolled out because it's better?

Lastly, you keep misusing the term "straw man." Big surprise there! I'm not creating or attacking false positions. I wish i was! Quite the opposite. You guys really believe this stuff. I've simply asked you to prove and defend  your position. You steadfastly refuse to do so. Since when is asking someone to back up what they are saying creating a Straw man? No straw man here. That you attack me personally with all the BSer crap and policitcal diatribe shows me you've got nothing. if you did, as pissed as you are at me, you'd put me down faster than a lame mule. And what better way to do that than with the facts.  but?

[quote=navet]

The discussion between Bg and mily is interesting, politics aside. The IRA and 401k have put middle America into the investor marketplace. There's so much money there that naturally the marketplace is trying to find ways to get paid to "manage" it. Yet, as the discussion on this thread shows, there is no clearcut optimal way to do so. The problem is that the marketplace doesn't reward the person best capable of guiding the investor . The market rewards the person who brings in the most money. And it is(in my opinion) an unwarranted assumption to say that the best investment guide brings in the most money, therefore the system is self regulating. The question I am asking myself right now is: Is this an ethical business, or is it a money chasing business that gives attention to ethics just enough to stay out of trouble, while maximizing AUM?

[/quote]

Navet a couple of things:

there really isn't a discussion going on here

If you don't know the answer to that question my question for you: Are you an advisor? i'm not trying to insult you, just that though the answer may not be obvious to you, it's blatantly obvious to the people who run this industry.

One other thing. Think about all that 401k money. Now look at your charts. I direct your attention to the years 1982 through 1999. See the big run up in stock prices? Kinda hard to miss,huh? That big run up, unprecedented in the history of stocks, skews all the numbers to the positive. But that's not really what i want you to think about. Do you think we'll ever see that type of run up again? Before you answer, look at all that money sitting in 401ks and more importantly, who owns that money. The owners of that money are moving from the accumulation phase to the liquidation phase. And the generation behind them doesn't have near the fire power of the generation in front. If you are selling from the chart this is something that has to enter your analysis. What drove that market?

Who the heck uses pie charts?

You attribute a lot of things to my work that apparently reside in your mind. Then you attack. That is your straw man.

First you attack, then you ask for facts. You should know that you don't get to close the deal if you don't build trust, first.

If you have a hard-on about wrap accounts, why don' you just say so?

" NASD cites the 1995 "Tully Report" in NtM 03-68 that described fee-based programs as a best practice because they tend to reduce the likelihood of abusive sales practices. But the Tully Report also acknowledged that customer accounts with low trading activity might be better suited for a commission-based arrangement. NASD staff's view is that firms must take those steps necessary to assess whether a fee-based account is appropriate for a particular customer and to periodically update this assessment. " - FINRA

I see wrap accounts as another way to do business. The intuitive portfolio construction that you apparently boast about - has not been substantiated or quantified in your own case by yourself. Show us your numbers, don't just give a narrative about your trading successes.

You make vague claims of superiority and demand that others present facts that can be used to make you look good. Who bears the burden of proof here. What are BG's numbers, isn't that the baseline from which he brags?

Please don't use Nick Murray's "places in the heart" to lecture me about how I suck and and am ripping clients off.

Can't you see how progressive you have become in your logic and discourse? Come back to the center, man. Don't be reactionary and defend your status quo - that is the real purpose of your attack on the straw man facts which you attribute and demand of my business.

" I'm not here to have a debate with you and take cheap shots. I'm honestly disgusted with people like you.

I don't care what designations you have behind your name, if you are doing this clients you need to thrown out of the business. "

As long as we're being honest, and since you rejected my olive branch: I think aggressive blowhard progressive such as yourself should be considered for deportation. I hear Ireland is beautiful, but they may not let you get off the boat. I challenge you to earn your CFP and come back to this debate with your numbers.

What makes you say that event isn't likely to repeat.  It will, in fact, repeat again.  Buy and hold is predicated on the idea that clients can control their emotions.  They can't.  In fact, many advisors can't.  Dismissing 2008 as a one-off event is naive. 

Also, someone pointed out risk management as part of portfolio management.  The problem is that there is no definable way to quantify risk.  Not to mention that risk tolerance is dynamic and changes with perceptions and situations.  Quite often more than four times a year. 

Just because Buy and Hold worked for a couple of decades doesn't mean it always works.  The financial markets are constantly changing.  It is best to adapt and change strategies as needed.  Otherwise, there is absolutely no need for advisors. 

For the life of me, i can never understand why these debates, especially one's like this, which can be (and are) so useful and constructive and health, become so personal. But i guess i should mind my own business.

That aside, Milly, you are arguing two different things. 1. Buy and hold vs 2. business model. The CFP has nothing to do with managing money. I hold the CFP, and it seemed to me that they taught a whole lot about MPT, and just a little about Technical Analysis. Pick your poison. Or use both but emphasize one. Whatever. The beautiful thing about this business is that it is a business of opinions, not a business of right and wrong.

I for one choose not to go down the path of "asset allocation, buy and hold, invest for the long term" Myclients, and my target market, are in their 50's. For those of you who haven't been there, when you are in your 50's and need more money to retire, long term is a day and a half.

As far as a business model, the only comment i would make is that if i was a pie chart guy and used SMA's with very little active management, my business would probably have grown faster than it has. On the other hand, I would have lost an awful lot of clients over the last 2 years. So i guess for me, by being tactical, I've lowered the standard deviation of my practice.

I tell people that investments are at the core of what i do. But i add that there is no point in making investment decisions without developing a Financial Plan first, so we know what we want to accomplish.

News Flash: You can be a CFP and still be very tactical and throw away the pie charts.

JMHO

SFB and Magician- Good points!

My beef is with the invest'em and forget'em crowd of which buy and hold is their mantra. This group holds stead fastly to to their asset allocation models based on historical data. Thus the pie chart reference.

And for those who don't know, Tully was the head of ML. His comments as head of the Tully Commission were self serving as it was a well known fact that ML was embracing the fee platform. A marketing direction that they had then recently undertaken. It was  also well documented that at the time Tully was a broker hater. He didn't hate them because of any professional reason. He resented how much money they made and was actively looking for ways to reduce their share of the revenue. He shared this dislike of brokers with  the person who appointed him to head the commission, SEC chairman Arthur levitt. Levitt was a former head of Shearson and also resented the money brokers made calling it obscene. The Tully Commission, informally known as the Rogue broker survey, was designed to study the rogue broker problem supposedly plaguing the industry during the early nineties. And what better way to root out the scum then to put two broker haters on the case? A rogue broker was defined as any broker with five or more complaints who worked for at least three different firms. The theory was that said bad apples were jumping from firm to firm to stay ahead of and away from the regulators thus enabling them to continue on with their cheating ways.

The study only included RRs of which at the time there were roughly 90,000. The problem was the commission ended up with egg on its face. Instead of uncovering a vast underground network of rogue brokers ripping off clients as they moved from firm to firm they found the opposite. Less than 300 brokers fit their definition of bad guys. Roughly 1/3 of one percent. The unexpected finding left the broker haters scrambling. They had to come up with something. So they decided to go the self serving route to save face. Raise professional standards etc and as no surprise take commissions, the brokers income, off the table and find another way to compensate them. The rise of the fee platform, reduced income for FAs, and that we all need to take continuing ed can be owed to the Tully Commission. The broker haters got what they wanted.

BG made a very good point, but I don't think he went quite far enough.  Remember those returns from 82-99?  Do you know when Revenue Act of 1978 went into effect, allowing Rule 401(k) to be implemented?  January 1, 1980.  Do you know when most of the big industrial companies rolled out their first 401(k) plans?  January 1, 1982.  Do you know how old the first Baby Boomers were in 1982?......37. 

What does this all mean?  It means that the largest population wave in history entered their prime earning years at the exact same time as the first employer-sponsored employee savings & investing plan was implemented.  On top of that, we entered one of the greatest periods of economic expansion, technological change, and employee efficiency in history. 

All great stuff, but let's be honest, the internet will never be invented again, 401K's will not be rolled out again, and we've got some serious economic headwinds to deal with.  It is sad that many advisors still look at the Great Bull Market as easily repeatable anytime soon. 

I haven't seen bondguy's numbers posted yet.  I am trying to figure out the manner in which you want numbers posted.  If you want incredibly generic numbers that support buy & hold (at least holding actively managed funds anyway) look at the American Funds piece, "Why this was not a lost decade".  Everyone on this board loves to rag on AFS, and if they're so bad, then obviouisly there are funds that can be shown with even better performance.  Take any (gasp!) 60/40 split - you choose the 60% in equities and take 5% for the average yield on individual bonds.  The average return on their equity funds is around 4.5% (my math, not theirs).  So your client has averaged 5ish% over the last decade.  Is it the 15% brokers were selling in 98-99? No.  Is it the more reasonable 7-8% I tend to gravitate towards? No.  But, a client with a reasonable withdrawal rate has been fine, not great, but fine.  Now when the S&P runs back over 1500, we'll be in great shape. :)

An interesting - and important -debate:

MPT/Asset Allocation/Buy-n-hold/"Our best days are ahead of us"  vs. Technical Analysis/"Throw out the pie charts"/Fast money/"We will never see another '82 - '99 bull market."

These are the extremes, but the truth is very few advisors find themselves at those extremes. Most find themselves somewhere in the middle. I, for example, am a tactical/core&satellite guy and will use technical tools, fundamental analysis and good 'ol common sense to determine a core portfolio allocation and then set about finding opportunistic satellite positions that tend to be short term in nature. Works for me, works for my clients.

No I don't have "proof" or numbers to show that my way is categorically better than anyone else's. But then who does? The modern capital markets are only 50 years old. How much statistical relevance can we draw from any observable events over such a short period?

How do I know that buy and hold is dead? For all I know we are on the verge of another '82-'99 bull market. So few believe this, therefore I ascribe a high probability it may happen.

Or we could have another 10 years of extreme volatility and go nowhere. The only way to make money will be to follow Dorsey Wright and his merry x and o's.

I simply don't know. And neither do any of you. The best we can do, it seems to me, is to find our "religion" and do our best. With the understanding that constant adaptation is needed since much of what we assume to be true today will be disproven in a decade.

A final observation - Bill Good ( whose system I use and love) is promoting the Dorsey Wright money management approach under the tagline "No More Pie Charts." Now I love Bill, but he's never run a dime of client money. Kind of reminds me of when my dry cleaner was recommending internet stocks in '99.

That aside, Milly, you are arguing two different things. 1. Buy and hold vs 2. business model. The CFP has nothing to do with managing money. I hold the CFP, and it seemed to me that they taught a whole lot about MPT, and just a little about Technical Analysis. Pick your poison. Or use both but emphasize one. Whatever. The beautiful thing about this business is that it is a business of opinions, not a business of right and wrong.

Amen. My point about the CFP, or a college education for that matter, is that hopefully you learn to first seek to understand, then be understood.

I can give s### as well as the next guy, and I'm not taking it from BG.

I'd still like to see BG's numbers, not gonna happen. The reason I started this thread is to get some feedback on my mildly tactical allocation approach. I still don't see any solid evidence or discussion about how anyone has been killing the market. It basically comes down to selling some level of volatility and keeping your clients invested.

I meant the title of this thread to be a little more abstract. Of course buy and hold is not dead. You don't market time the buying and selling of your house every quarter, and you know that eventually the cost of lumber and cement and labor will go up in a relative way from inflation. There are owners, and there are lenders.

If you are soliciting a buy or a sell, you better have a good reason. Otherwise, I would argue that even though inflation is not strictly good for stocks, the main purpose of holding equity is to keep up with the growth and inflation in the economy, and collect dividends.

How you handle the volatility that is delegated to you by your clients is more "art".

I don't see any tactical guys here making calls about recent market conditions, or what might happen over the next twelve months.

Most clients likely would have been lucky if their advisor had just kept them in a balanced portfolio over the past decade. That's not necessarily the best way, or even the way I allocated portfolios, but if you are going to tell stories or attack other people's ideas, you better be ready to show the meat.

With regards to the state of the industry and financial advisors, in my opinion, you better be ready to sell more than performance. Of course, we all provide more than just investments and performance.

B.G., get over your attitude about wrap accounts or RIA fees. Your commission or 12b1 world is just another way to get paid. Nice history lesson, I think your analysis is a little cynical.

For most, there is no such thing as fast money. You go to the casino with $1000 and turn it into $5000 and cash out. Now what? You could walk, but you only have 5k. You double down and trade against yourself until you regress to the mean. If you're lucky, you walk out with $1000. You forgot to subtact the price of drinks and the nookie's drinks.

The next day, you tell big stories about your exploits at the casino. You forget to mention your losses. Your golf buddies smile and and enjoy your stories anyway. It's not so easy to BS them on  your golf score, which turns out to be average. Everyone is a winner, because they had fun and got some exercise. As it turns out, and they don't even really want to know for sure, everybody's d**k is about average size.

But there is a bigger picture here. In a post-industrial America, where the pie is growing slowly or even shrinking, there is a battle going on that mirrors this discussion. The free markets are shackled by regulations, taxes, central planning and destruction of competition.

For portfolios, costs and (tactical) allocation mistakes are still the biggest threat.

If you are cold calling people and making big claims about how you are going to add value and outperform the market and attack those who would provide consistent if not average results, you better have the goods.

Ironically, Congress is taking a closer look at this kind of story telling, and getting closer to restricting your freedom to call yourself a financial planner. If the nanny state is going to bail out Wall Street for its mistakes, maybe it should regulate planners better.

My point about anecdotal asset allocation, or tactical allocation, and regulations, is - once you start going down that road, sitting on your high horse and making a virtue out of your approach - it justs gets farther away from the center. Whether all of this is "good" or "bad", we'll see, I'm optimistic the markets will prevail.

[quote=Milyunair]

I don't see any tactical guys here making calls about recent market conditions, or what might happen over the next twelve months.

[/quote]

S&P hits 1200 & if it hits 1225 it runs on to 1300.

But the action part is secret.

So it annoys some that I keep pointing out that you have some avowed progressives attacking things like MPMT, asset allocation, index funds, wrap accounts.

In a market that is distorted by political economic policy, you have folks who claim to add value for their clients through their understanding of the markets. ( Alpha to asset allocation, through technical analysis, market timing, security selection, bond rotation, whatever.)

Saying advisors should be kicked out of the industry, are cheating their clients by not adding value, and so on.

Does anyone else see the built-in conflict of interest here? That's why I'm so shocked to see aggressive progressives here.

Kind of like accountants, lobbying for a complex tax code that only they can navigate, and then saying others are incompetent because they don't know how to practice voodoo.

With regards to tactical allocation, I think you have a new kind of risk: economic ignorance. Because whether your economics are conservative or progressive, you can be politically correct and come together on the need to take some action, even in a distorted market. So now you have boutique RIA firms trumpeting their newfound tactical approach - but in the face of increasing economic ignorance ( market distortion caused by government planning and regulation) - voodoo and stories become more important than showing your numbers.

The wealthy don't care anyway, they have delegated the money management task and the portfolio managers are mainly selling risk management, not performance, and do a good job for their clients.

So now we have: security risk, interest rate risk, market risk, inflation risk, ignorance risk ...

But in the spirit of Nick Murray, and that core belief in markets, and equities for the long haul, and so on, everything we're doing could be an investment. The markets will redistribute the wealth, even away from government.

Our flirtation with affordable housing for all, increasing regulation of the financial industry and brokers, bailouts, affordable medical care - all of this will bear fruit for long-term investors - because the market will respond.

In that sense, I still see no evidence to seriously consider shorter term tactical allocation very seriously.

Even the economic cycle seems to be skewed - now is the time (recovery) when small business should be creating jobs and small caps outperform. You talk about the need to cut payroll taxes so small business can create jobs, and people look at you like you're crazy - they think job creation comes from big corporations and government. And some of them are out giving financial advice. Crazy world.

If you can get your mind around this, you'll feel good about your job security, whatever your take on tactical versus static:

http://www.financial-planning.com/fp_issues/2010_6/looking-for-the-source-2667031-1.html

Fifty percent of the variance in returns among balancd funds is due to tactical asset allocation mix, 50% due to skill in stock and bond picking.

What percentage of fund managers outperform their index? Much of the variance must come from failure to perform at index.

How relatively important is tactical alloation? Probably enough to justify making a living.